Czechs exit mild recession as stronger exports drive recovery

The Czech Republic emerged from a mild recession as stronger demand for the country’s exports outweighed depressed consumer demand.

Gross domestic product rose 0.1% in the first quarter from the previous three months after two quarterly contractions, according to preliminary data released on Tuesday. The economy dropped 0.2% from a year earlier. The statistics office said household spending continued to decline in the first quarter. It will publish the detailed GDP data on May 30. 

While businesses are recovering from global supply chain disruptions, Czech households have been hit by the worst cost-of-living crisis in three decades. But improving consumer sentiment and rising demand for key manufacturing products like cars and auto parts indicate that economic expansion is likely to continue throughout the year.

The recession had “atypical features,” such as a tight labor market and increasing profit margins, central bank board member Jan Kubicek said last week. 

While overall price growth is expected to slow rapidly this year, driven by declining energy costs, the lowest unemployment rate in the European Union keeps upward pressure on salaries and underpins home-grown inflation risks. 

The central bank is closely watching wage growth and government efforts to curb the budget deficit when discussing whether it needs to tighten monetary policy further. 

Despite increasingly hawkish warnings in recent weeks, most policymakers will probably vote to keep the benchmark rate at 7% on Wednesday, while signaling that borrowing costs will remain elevated for a longer period of time.